Welcome to your twenties—the era of exploration, self-discovery, and, unfortunately, financial missteps. Your twenties are a pivotal time in your life with the promise of independence and a bright future. While it’s not the most sexy thing to think about, the financial decisions you make during this period can significantly impact your journey toward becoming financially free.
In this blog post, I’ll share some common money habits that can hinder your path to financial freedom and discuss practical steps to start building good money habits.
Disclaimer: this post is not financial advice. If you’re unsure about implementing any tips, you should talk to a professional financial advisor before proceeding.
How to Become Financially Free
While I wish the path to financial freedom was simple, it can be a really challenging task. Most of becoming financially free rests on habits, and habits are not always the easiest to form or break. However, because financial freedom is not solely based on your income, there is some optimism in knowing that most people can reach that financial goal with a little bit of financial education and discipline. Keep reading to learn some tips for building good money habits that will help you become financially free.
The Myth of Infinite Time
Your twenties might feel like an endless stretch of time, which encourages a laid-back attitude toward money management. Money will return and you’re only young once, but focusing only on fleeting enjoyment will make the future a struggle. You have to find balance. The dangerous assumption that you have all the time in the world to sort out your finances can lead to procrastination and ultimately a potential loss of money. The truth is, time is a valuable asset, and the earlier you start building good money habits, the more time your money has to grow (and the less you’ll have to work later in life).
The Influence of Lifestyle Inflation
One of the most common money habits that creeps into the lives of many in their twenties is lifestyle inflation. This is the first time many people have a job that can support them and where their wants and needs can begin to blend. As your income increases, so does your spending.
The upgraded apartment, the new car, the trendy wardrobe—it’s easy to succumb to the allure of a more luxurious lifestyle, especially with the increase in influencer marketing that floods social media apps. However, constantly upgrading your standard of living without a corresponding increase in savings and investments can stunt your financial growth.
Practical Tip: Embrace Minimalism
Consider adopting a minimalist lifestyle. Focus on the things that truly bring you joy and add value to your life. By cutting down on unnecessary expenses, you not only save money but also cultivate a mindset of intentional living.
If you don’t know exactly how the item would be used on a daily or weekly basis in your life, then you probably don’t need it. Sometimes it helps to think about everything else that would potentially become the opportunity cost of you buying the thing you truly don’t need.
The Debt Dilemma
Student loans, credit card debt, and personal loans—these financial burdens often accumulate during your twenties, hindering your ability to save and invest for the future. Ignoring the weight of debt or mismanaging repayments can lead to a cycle of financial struggle that persists into your thirties and beyond.
Practical Tip: Create a Debt Repayment Plan
Although paying back debt can be frustrating and seem like a never ending cycle, you will feel much better once the burden is off your shoulders. Prioritize high-interest debts and create a repayment plan. Consider consolidating loans for a lower interest rate.
Don’t shy away from seeking professional advice if needed. Tackling debt head-on in your twenties can liberate you from financial stress in the long run.
The Impulse Buying Trap
Living in a world of instant gratification, it’s easy to succumb to impulse buying. Whether it’s the latest gadgets, fashion trends, or dining out, impulsive spending can drain your financial resources faster than you can imagine.
Practical Tip: Implement the 72-Hour Rule
Before making a significant purchase, give yourself 72 hours to mull it over. This cooling-off period helps curb impulsive decisions. If, after careful consideration, the purchase still aligns with your financial goals, go ahead. Otherwise, redirect that money toward savings or investments.
Force yourself to think before you buy. If it something unnecessary for survival, write it down in your notes app and leave the store or close the tab. If you truly need it, you’ll find your way back to it. More often than not, you may find that you forget about the item altogether.
Also, never put your credit card in a quick buy feature. You’d be amazed how much you can save if buying an item requires you to physically pull out your card and type in every number.
The Perils of Ignoring Savings
In your twenties, saving for retirement might seem like a distant concern. However, delaying the habit of saving can have severe consequences on your financial freedom later in life. The power of compound interest is most advantageous when given time to work its magic.
Practical Tip: Embrace Automated Savings
Set up automatic transfers to a savings or investment account each month. Treating your savings like a non-negotiable expense ensures that you prioritize your financial future. Even small amounts can accumulate into a substantial sum over time.
With automated savings, you won’t even know the money was there in the first place. Out of sight and out of mind are the best ways to tackle saving if you feel like that will be challenging to prioritize for you.
Failing to Invest in Yourself
While saving is crucial, solely relying on stashing money away in a traditional savings account can limit your financial growth. Failing to invest in yourself—whether through education, skill development, the stock market, or entrepreneurship—can be a missed opportunity to increase your earning potential.
Your day job and your passions don’t have to be 100% aligned. But you can take time outside of work to invest in your personal interests. Taking time and resources to invest in yourself can maximize earning potential and prevent burnout.
Practical Tip: Invest in Education and Skill Building
Identify areas where you can enhance your skills or acquire new ones. This investment in yourself can lead to career advancement and increased income. Explore online courses, attend workshops, or pursue further education to stay competitive in your field.
Investing in skills outside of your career role can also help you grow personally and financially. Do you have a skill you can leverage to start a business or a network that can help you start a side hustle?
The Fear of Financial Planning
The prospect of creating a budget, tracking expenses, and setting financial goals can be overwhelming, causing many in their twenties to avoid the process altogether. No one wants to feel restricted with their hard earned money. However, without a clear financial plan, achieving true financial freedom becomes a distant dream.
Practical Tip: Start with Small, Achievable Goals
Begin by setting small, achievable financial goals. Whether it’s saving a specific amount each month, paying off a credit card, or building an emergency fund, these milestones provide a sense of accomplishment and pave the way for more substantial financial planning.
Take a hard look at your monthly expenses and see what seems reasonable. Are you spending too much on groceries and often have to throw things out because they’ve gone bad? Do you use every streaming service that you’re paying for?
Overlooking Emergency Funds
Life is unpredictable, and unexpected expenses can throw a wrench into your carefully crafted budget. Not having an emergency fund can force you to pull from your investments or, worse, accumulate debt to cover unforeseen costs.
Practical Tip: Build a Robust Emergency Fund
Strive to have at least three to six months’ worth of living expenses set aside in an easily accessible account. This is something you’ll probably have to build over time. Three to six months of living expenses won’t just come out of thin air as you likely spend most of your income on survival as it stands.
However, once you build an emergency fund, this financial safety net ensures that you can weather unexpected storms without compromising your long-term financial goals.
Comparison as a Thief of Joy
In the age of social media, comparing your financial progress to others can lead to feelings of inadequacy and the temptation to overspend to keep up appearances. Your social media is a culmination of things your phone recognizes you interact with. If you’re searching and focusing on content to help you become financially free, it’s natural that you’ll see more content of people with successful money habits or high incomes.
Remember, everyone’s financial journey is unique, and what works for someone else may not be suitable for you.
Practical Tip: Focus on Your Financial Journey
Instead of comparing yourself to others, concentrate on your financial goals and the progress you’ve made. Celebrate your achievements, no matter how small, and use the success stories of others as inspiration rather than a yardstick for your own success.
Neglecting Financial Education
Financial literacy is a powerful tool on your journey to becoming financially free. Neglecting to educate yourself about basic financial principles, investment options, and economic trends can leave you vulnerable to making uninformed decisions.
Practical Tip: Make Financial Education a Priority
Read books, attend workshops, follow reputable financial blogs, and seek advice from knowledgeable mentors. The more you understand about personal finance, the better equipped you are to make informed decisions that align with your long-term goals. Gaining insight from a wide range of perspectives will help you make unbiased and well-informed financial decisions.
Your twenties are a crucial period for establishing the money habits that will shape your financial future. By avoiding common pitfalls such as lifestyle creep, debt accumulation, and neglecting financial education, you can set the stage for a financially free and secure life.
Be intentional with your spending, prioritize savings and investments, and continually build your skills to unlock the doors to financial freedom. Remember, the choices you make today will echo in your financial future—make them count.
Looking for more ways to focus your saving?
- A Step-by-Step Guide to Saving for a New Car
- How to Budget for Traveling in Your Twenties
